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Realities of China today

By Martin Hart-Landsberg

Against the Current -- Interest in the post-1978 Chinese market
reform experience remains high and for an obvious reason: China is
widely considered to be one of the most successful developing countries
in modern times. The Chinese economy has recorded record rates of
growth over an extended time period, in concert with a massive
industrial transformation. Adding to the interest is the Chinese
government's claim that this success demonstrates both the workability
and superiority of "market socialism."

There are those on the left who share this celebratory view of the
Chinese experience, believing that it stands as an effective rebuttal
to the neoliberal mantra that still dominates economic thinking.
Therefore, they encourage other countries to learn from China's
gradual, state controlled process of marketization, privatization, and
deregulation of economic activity. A small but significant number share
the Chinese government's view that China has indeed pioneered a new
type of socialism.

Many on the left also believe that China may soon be capable of
anchoring an alternative international economic system, thereby
offering other countries the opportunity to reduce their dependence on
the current U.S. dominated system and pursue their own independent
development strategies.

Unfortunately, as argued below, there is no justification for this
positive perspective on the Chinese experience. First, regardless of
what Chinese leaders say, China is not pioneering a new form of market
socialism - rather the reforms have led to the restoration of
capitalism. As a result, Chinese internal dynamics are clearly hostile
to the creation of any anti-capitalist alternative. Second, the reforms
have produced an increasingly exploitative growth process, one that is
generating considerable wealth for a small minority at unacceptably
high cost for the great majority of Chinese working people.

Finally, China's growth process is now structurally enmeshed in, and
dependent upon, the operation of a broader process of regional and
international restructuring, one controlled by transnational capital.
As a result, China is not only incapable of serving as an anchor for an
alternative global economy, its accumulation dynamics actually
contribute to the strengthening of existing international structures of
power and the global imbalances and tensions they generate.

The stakes are high in this engagement over the nature and
significance of the Chinese experience. For example, left support for
the Chinese reform experience encourages, consciously or unconsciously,
the mistaken belief that socialism can be built through the use of
markets and a closer integration with global capitalist accumulation
dynamics. At a minimum, this leads to confusion about the nature of
socialism, and of capitalism as well.

This is more than a theoretical concern: one finds in many countries
- including Cuba, Venezuela, South Africa and Brazil -- advocates for
socialism who argue that their respective governments should implement
Chinese style market reform policies.

Chinese workers, in growing number, are beginning to challenge
Chinese state policies, not just in response to the exploitation they
experience but also because of their renewed interest in socialism
itself. It is therefore vital that we develop an accurate understanding
of the Chinese experience, both to provide support for those seeking
socialist renewal in China and to ensure that efforts at social
transformation in other countries are not compromised by false
understandings of the dangers of markets and capitalist imperatives.

China's structural transformation

In 1978, two years after the death of Mao Zedong, the leadership of
the Chinese Communist Party, led by Deng Xiaoping, decided to radically
increase the economy's reliance on market forces. The leadership
claimed that such a step was necessary to overcome the country's
growing economic problems which were alleged to be caused by Mao's
overly centralized system of state planning and production.

Political and economic changes were definitely desired by the
majority of Chinese. Deng and his followers, however, greatly
overstated the severity of existing problems and, more importantly,
ignored popular calls for an exploration of other, non-market reform
responses.

Once begun, the market reform process quickly became uncontrollable.(1)
Each stage generated new tensions and contradictions that could only be
resolved (given the leadership's opposition to worker-community
centered alternatives) through a further expansion of market power. The
"slippery slope" of market reforms thus led to an eventual privileging
of market dynamics over planning, private ownership over public
ownership, and foreign enterprises and markets over domestic ones.

Economic transactions are now overwhelmingly shaped by market
prices. The share of retail sales made according to market determined
prices rose from 3% in 1978 to 96.1% in 2003. For producer goods, the
share rose from zero to 87.3% over the same period.(2)

The growing industrial dominance of the private sector is also
clear. In 1978, state owned enterprises accounted for all value added
in China's industrial sector (defined as mining, utilities, and
manufacturing). By 2003, the private sector share was larger than the
state sector share: 52.3% to 41.9%.(3) But even this diminished state share overstates the actual "economic weight" of state production.

Recognizing that many state enterprises are now jointly owned by
private interests - either through joint venture or stock ownership -
the Organization of Economic Cooperation and Development (OECD)
classifies state firms as either directly or indirectly controlled,
depending on whether the state share of paid-in capital is greater than
50% of the total. In 2003, directly controlled state enterprises
accounted for only 22.9% of industrial value added - less than a
quarter of the total.

The declining strategic importance of the state sector becomes even
clearer if we narrow our focus to manufacturing. The OECD has divided
China's manufacturing sector into two groups. The first includes the
five industries that continue to be dominated by state production:
petroleum processing and coking, smelting and pressing of ferrous
metals, smelting and pressing of non-ferrous metals, tobacco
processing, and transport equipment.

The second and larger group (which accounts for over 75% of
manufacturing value added) is dominated by private enterprise. This
group is made up of 23 different manufacturing industries, including
food processing, textiles, garments, chemicals, medical and
pharmaceuticals, plastics, ordinary machinery, special purpose
machinery, electrical equipment, and electronic and telecom equipment.
As the OECD explains:

In 1998 the private sector produced the higher share of value added
in only 5 out of these 23 . . . manufacturing industries. By 2003, this
was true for all 23 of these industries. Moreover, in half of them,
private firms produced more than three-quarters of output. Overall in
these 23 industries, the private sector employs two-thirds of the labor
force, produces two-thirds of these industries' value added and
accounts for over 90 percent of their exports.(4)

State-owned enterprises do remain important and the Chinese state
still exercises control over critical sectors of the economy, but these
areas of strength are now largely limited to finance and activities
supported by state ownership of natural resources. Thus, in 2006, three
state oil companies accounted for half of the earnings of the 160
largest "state owned monopolies and oligopolies." In fact, "Up to 80
percent of the year-on-year increase in profits realized in 2006 by all
Chinese enterprises were attributable to . . . monopoly financial
groups or monopoly firms in the areas of oil and petrochemicals,
electricity, coal and metals."(5)

Foreign capital also enjoys a greatly strengthened role in the
Chinese economy. The share of foreign manufacturers in China's total
manufacturing sales grew from 2.3% in 1990 to 31.3% in 2000.(6)
Perhaps more revealing, a 2006 government report concluded that foreign
capital holds a majority of assets in 21 out of 28 of the country's
leading industrial sectors.(7)

One consequence of this development is that China's economic growth
has become increasingly dependent on foreign produced exports. Foreign
firms dominate China's export activity: their share of China's total
exports grew from two percent in 1985 to 58% in 2005 (and stands at 88%
for high tech exports.(8)

Moreover, these exports are increasingly being produced by 100%
foreign owned firms. A case in point: the share of computer related
exports produced by 100% foreign-owned firms increased from 51 to 75%
over the period 1993-2003.(9) As a result of these trends, the ratio of exports to GDP has climbed from 16% in 1990 to over 40% in 2006.

In sum, while state planners and enterprises continue to play an
important role in China's economy, state power has been used to shape
an accumulation process that is now dominated by private
(profit-seeking) firms, led by foreign transnational corporations,
whose production is largely aimed at markets in other (mostly advanced
capitalist) countries.

Regardless of how one might evaluate the performance of the Chinese
economy, it is hard to imagine how this development can be viewed as
laying the foundation for an alternative to capitalism, at either
national or international levels. Rather it points to the conclusion
that capitalism itself has been restored in China.

Social consequences of market reform

Many on the left are no longer interested in the debate over whether
China is socialist. Rather, they are concerned with whether China's
growth and transformation has led to "successful" economic development.
For a majority, the answer is an unequivocal "yes." This answer appears
largely based on a consideration of a limited but important set of
indicators: rates of growth of foreign investment, exports, and GDP.

If we broaden our notion of development, however, to include
measures of working-class well-being, the answer tragically changes.
The reality is that China's market refor m polices have created a
growth process underpinned by increasingly harsh working and living
conditions for the great majority of Chinese.

Perhaps most surprising is the fact that the country's rapid growth
has failed to generate adequate employment opportunities. According to
the International Labor Organization (ILO), total urban (regular)
manufacturing employment actually declined over the period 1990-2002,
from 53.9 million to 37.3 million.(10)
And while there was a small increase in total urban employment, almost
all the growth was in irregular employment, meaning casual-wage or
self-employment - typically in construction, cleaning and maintenance
of premises, retail trade, street vending, repair services or domestic
services.

More specifically, while total urban employment over this 13-year
period grew by 81.7 million, 80 million of that growth was in irregular
employment. As a result, irregular workers now comprise the largest
single urban employment category - much as in Africa and Latin America
where such an outcome is blamed on stagnant capital accumulation. In
addition, the ILO reports declining labor force participation rates and
double digit unemployment rates for urban residents.

The reform process has taken an especially heavy toll on state
workers. According to Chinese government figures, state-owned
enterprises laid off 30 million workers over the period 1998-2004. As
of June 2005, 21.8 million of them were struggling to survive on the
government's "minimum living allowance" - the basic welfare grant given
to all poor urban residents. In June 2005, this allowance was
approximately $19 a month.(11)

Of course there has been job growth in the private sector,
especially at firms producing for export. But most of the new jobs are
low paid with poor working conditions. "Even after doubling between
2002-2005, the average manufacturing wage in China was only 60 US cents
an hour, compared with $2.46 an hour in Mexico."(12)

A recent report on labor practices in China by Verite Inc., a U.S.
company that advises transnational corporations on responsible business
practices, found that "systemic problems in payment practices in
Chinese export factories consistently rob workers of at least 15% of
their pay."(13)
Workplace safety is an even greater problem. According to official
Chinese government sources, about 200 million workers labor under
"hazardous" conditions. "Every year there are more than 700,000 serious
work-related injuries nation-wide, claiming 130,000 lives."(14)

One critical but often overlooked explanation for China's
manufacturing competitiveness is that approximately 70% of
manufacturing work is done by migrants. Over the last 25 years, some
150-200 million Chinese have moved from the countryside to urban areas
in search of employment.

Although the great majority of these migrant workers have moved
legally, they suffer enormous discrimination. For example, because they
remain classified as rural residents under the Chinese registration
system, not only must they pay steep fees to register as temporary
urban residents, they also have no rights to the public services
available to urban born residents (including free or subsidized
education, health care, housing and pensions). The same is true for
their children, even if they are born in an urban area.

As a consequence migrant workers are easily exploitable. They
typically work 11 hours a day, 26 days a month. Most receive no special
overtime pay and commonly earn one-quarter to one-half of what urban
residents receive.(15)

The overall effectiveness of Chinese labor policies (which are
primarily designed to boost export competitiveness) is well illustrated
by recent trends in wages and consumption. Chinese wages as a share of
GDP have fallen from approximately 53% of Gross Domestic Product in
1992 to less than 40% in 2006. Private consumption as a percent of GDP
has also declined, falling from approximately 47% to 36% over the same
period. By comparison, private consumption as a share of GDP is over
50% in Britain, Australia, Italy, Germany, India, Japan, France, and
South Korea; it is over 70% in the United States.(16)

As the Economist states, "the decline in the ratio of consumption to
GDP . . . is largely explained by a sharp drop in the share of national
income going to households (in the form of wages, government transfers
and investment income), while the shares of profits and government
revenues have risen." In fact, according to the Economist, "Many
countries have seen a fall in the share of labor income in recent
years, but nowhere has the drop been as huge as in China."(17)

A vicious cycle is at work here: the lower the share of income going
to workers, the more economic forces reinforce the export orientation
of the Chinese economy, which encourages the implementation of new
policies to suppress worker standards of living.

To be sure, China's growth and industrial transformation has also
generated great wealth - leading to an explosion of inequality and the
formation (or solidification) of new class relations. An Asian
Development Bank study of 22 East Asian developing countries concluded
that China had become the region's second most unequal country,
trailing only Nepal. This is not surprising considering that over a
roughly ten-year period (from the early 1990s to the early 2000s) China
recorded the region's second highest increase in inequality, again
trailing only Nepal.(18)

While the results of the Asian Development Bank study are
significant, they do not adequately convey the real concentration of
wealth that has accompanied and motivated China's market reform
program. According to the Boston Consulting Group, China had 250,000
U.S. dollar millionaire households (excluding the value of primary
residence) in 2005, the sixth greatest national total in the world.
Although this group made up only 0.4% of China's total households, it
held 70% of the country's wealth.(19)

According to a yearly listing of China's richest people, the number
of U.S. dollar billionaires has grown from one in 1999 to 106 in 2007
(more than any other country except the United States).(20)
China's nouveau riche have not been shy about spending their money:
"LVMH Moët Hennessy Louis Vuitton, the world's largest luxury goods
maker, plans to open two to three stores a year in China, where sales
are rising 50% annually. Financièr Richemont, the world's
second-biggest, expects to quadruple sales in China within five years
by selling more Cartier jewelry and Piaget watches."(21)

There are clear signs that the Communist Party is becoming concerned
that widening income (and consumption) inequalities are adding fuel to
growing popular anger over deteriorating employment, health, housing,
environmental and retirement conditions. And with good reason: the
number of large scale "public order disturbances" has grown from 58,000
in 2003, to 74,000 in 2004, 87,000 in 2005, and an estimated 94,000 in
2006.(22)
Particularly worrisome to the leadership is the increasingly effective
and militant strike activity at foreign-owned export factories (despite
the fact that strikes remain illegal in China).

As repression has failed to stem the rising tide of protest, the
Party has also begun to initiate a number of reform efforts. These are
designed to ameliorate the worst excesses generated by China's growth
strategy without radically changing its orientation. For example, the
central government approved a new Labor Contract Law which came into
force on January 1, 2008.(23)
Both the European and U.S. Chambers of Commerce bitterly opposed this
effort and intervened heavily during the drafting stage in a successful
effort to reduce its scope.

The approved law requires, among other things, that all employers
provide their workers with a written contract (something that a
majority of workers either do not have or have never seen) that
specifies the terms of employment and includes pension and insurance
benefits. The new law also requires that companies pay a premium for
overtime and weekend work.

While the new law has generated a sharp increase in arbitration
cases (most of which involve non-payment of wages and overtime
premiums), its impact on employment conditions appears limited (even in
the areas it was intended to address).(24)
Many companies are circumventing the law by reducing their employment
of "regular" workers (some did so before the law went into effect),
relying instead on workers provided by labor dispatch companies or
increasing their use of subcontracting relationships.

Some companies now pay workers their contracted salaries and respect
vacation and overtime standards, but then undermine worker gains by
increasing what the same workers must pay for company-provided
dormitories and canteen meals. Some foreign-owned companies are
threatening to shift production to a different location within or even
outside of China if workers press their demands too aggressively.

In addition, the many-layered official dispute resolution process
remains slow and costly, making it difficult for workers to force
unwilling companies to comply with the higher standards contained in
the new law. Finally, and most importantly, the new law still allows
local governments, and thus employers, to differentiate between urban
born and migrant workers; the latter continue to be denied unemployment
and other employment-based social security benefits.

A major reason that many in the leadership of the Communist Party
remain unwilling to support fundamental changes in China's current
growth strategy, despite its devastating effects on working people, is
that they have been among its biggest beneficiaries. Their ability to
shape the reform process has enabled them to use state assets for
personal gain, place family and friends in lucrative positions of
authority in both the state and private sector, and ensure that the
rapidly growing capitalist class remains dependent on the Party's good
will.

This, in turn, has led to a fusion of party-state-capitalist elites
around a shared commitment to continue the advance of a capitalist
political economy with "Chinese characteristics."

The results of this development are easy to see. Many of the
children of leading party officials (known as the "princelings") were
appointed to key positions in "China's most strategic and profitable
industries: banking, transportation, power generation, natural
resources, media, and weapons. Once in management positions, they get
loans from government-controlled banks, acquire foreign partners, and
list their companies on Hong Kong or New York stock exchanges to raise
more capital. Each step of the way the princelings enrich themselves -
not only as major shareholders of the companies, but also from the
kickbacks they get by awarding contracts to foreign firms." Not
surprisingly, more than 90% of China's richest 20,000 people are
reported to be "related to senior government or Communist Party
officials."(25)

China's elite has been willing to share the fruits of the country's
production with international capital - although struggles over
distributional issues are growing sharper as international capital
strengthens its position within China - because international capital's
participation has been critical to the establishment and continued
growth of China's new political economy. China's elite, however,
appears determined to ensure that they will be the primary national
claimant.

Thus, at the same time that the "Chinese Communist Party has opened
up an unprecedented number of sectors for foreign-equity participation
. . . the authorities have . . . tightened control over other aspects
of the economy. This has resulted in the truncation, if not atrophy, of
thousands of [small and medium sized] private firms. These are in
danger of being edged out by powerful monopolies and oligopolies that
are controlled either by the party-and-state apparatus or by senior
cadres and their offspring."(26)

In sum, it appears that those driving China's economic strategy have
been remarkably successful in using the reforms to shape an
accumulation process responsive to their interests. And consistent with
the underlying capitalist nature of this process, their gains have come
at ever greater cost to the majority of Chinese working people.

As a result, Chinese leaders must now contend with an explosion of
strikes and demonstrations. It remains to be seen whether such actions
will threaten future foreign investment and export production, two of
the most important pillars upholding China's growth strategy.
Regardless of what happens, it is difficult to see on what basis
progressives would want to celebrate and promote China's reform
experience.

Market reforms and transnational accumulation

Many on the left believe that the combination of China's size and
pattern of growth along with the (self-proclaimed) socialist (or at
least anti-imperialist) orientation of the leadership of the Chinese
Communist Party mean that China will soon be capable of anchoring a
new, more progressive international economic order.

This belief tends to be buttressed by the following reasoning: China
has maintained (and can be expected to sustain) high rates of growth
for decades. Because this growth is highly import dependent, it
supports the export production and thus economic growth of China's
trading partners (especially in East Asia but also in Latin America and
Africa).

Moreover, China's export success has enabled the country to build up
its own huge foreign exchange holdings, which the government is
increasingly using to help its Latin American and African trading
partners finance needed (infrastructure) modernization.

This vision of China as a powerful and positive agent for
international change is attractive but flawed. In most cases, it is the
result of using a nation-state lens to understand Chinese accumulation
dynamics. The reality is that China's economic transformation is not
occurring in a vacuum or solely in response to Chinese initiatives.

Rather, East Asia's economies, including that of China, are being
linked and collectively reshaped by broader transnational capitalist
dynamics, in particular by the establishment and intensification of
cross-border production networks organized by transnational
corporations. As a result, China's own accumulation dynamics are
increasingly being tied to dominant patterns of investment and trade,
thereby reinforcing rather than offering an alternative to them.

Most immediately, the expansion of cross-border production networks
has led to a significant increase in the trade dependency of all East
Asian economies. One indicator of this trend: the region's export/GDP
ratio grew from 24% in 1980 to 55% in 2005. By comparison, the world
average in 2005 was only 28.5%.(27)
Further, a growing share of this activity is now under the control of
transnational corporations; for example, they account for 73% of
Malaysia's and 86% of Singapore's exports of manufactures.(28)

More significantly, as a consequence of the operation of these
networks, a rising share of East Asia's trade in manufactures is now in
parts and components. This is illustrated by the changing trade
composition of leading Southeast Asian countries (Indonesia, Malaysia,
Philippines, Singapore, Thailand, and Vietnam).

The share of parts and components in the group's total exports of manufactures grew from 27.5% in 1992-3 to 40.3% in 2004-5.(29)
The import share of parts and components also grew substantially over
the same period, from 32.6% to 48.5%. Trends are similar for Taiwan and
Korea. For example, the export share of parts and components for Taiwan
grew from 21.2% to 43.5%.

In addition, almost all the parts and components being traded by
East Asian countries come from the same three industrial categories
(with identical national rankings of importance): electronics
machinery, office machines and automatic data processing, and
telecommunications and sound recording. Moreover, these parts and
components are increasingly being traded from one developing East Asian
country to another; the intra-regional share of parts and components
trade rose from 37.8% in 1992-3 to 55.6% in 2004-5.

In short, East Asian export production (itself a growing share of
total national production) is increasingly narrowing not only to parts
and components, but also to a select few operations in a select few
industries in response to the needs of transnational
corporate-controlled production networks.

China was not only pulled into this process of regional
restructuring, it has become central to its functioning. In the words
of the Asian Development Bank, "the increasing importance of
intra-regional trade is attributed mainly to the parts and components
trade, with the PRC functioning as an assembly hub for final products
in Asian production networks."(30)

China's unique position as the final production platform in this
transnational structured regional production system is highlighted by
the fact that it is the only country in the region that runs a regional
trade deficit in parts and components.

As a consequence of this restructuring, East Asia's overall export
activity has shifted away from the United States and the European Union
and towards East Asia, and in particular China. On the other hand,
China has shifted its export emphasis away from East Asia and towards
the United States and the European Union.

Between 1992-3 and 2004-5, the East Asian share of China's final
goods exports declined from 49.5% to 26.5%, while the OECD share
(excluding Japan and Korea) increased from 29.3% to 50.1%.(31)
In fact, China is now the region's largest exporter to the United
States and the European Union in absolute and relative terms. Thus, the
mirror image of China's surplus in trade with the United States and the
European Union is its deficit in trade with East Asia.

As a result of this regional restructuring, China has become the
first or second most important export market for almost all East Asian
nations. This development has, as noted above, encouraged the belief
that China's import dependent production will enable East Asian
countries (and those in Latin America and Africa that also export to
China) to "uncouple" from the U.S.-dominated international economic
order.

However, since this trade activity largely involves an
intra-regional trade of parts and components culminating in China-based
production with final sales largely directed to the United States and
the European Union, East Asia's overall dependence on developed
capitalist markets has actually grown stronger rather than weaker.
According to various estimates cited by the Asian Development Bank, it
appears that the percentage of Asian exports consumed within Asia
ranges from a high of 22% to a low of only 11%.(32)

This regional perspective enables us to see more clearly the
problematic nature of Chinese growth dynamics (for working people both
inside and outside China). The most obvious problem is that China's
continued growth (and thus the region's production) is now dependent on
the ability of the United States to run ever greater trade deficits.
Since it is doubtful that the U.S. economy can continue to sustain such
large and growing deficits, it is difficult to see how China (and by
extension the East Asian countries that provide China with parts and
components) can avoid painful adjustments involving lower rates of
growth and a further worsening of majority employment and living
conditions.

Chinese growth dynamics remain problematic even if international
trade imbalances can be sustained. For example, China's position as
final assembly hub within numerous cross-border production chains has
significantly weakened Chinese efforts at technological upgrading.

Surveying China's situation five years after the country's 2001
accession to the WTO, the Chinese economist Han Deqiang recalls that he
had "argued the greatest damage [of membership] would be to China's
capacity to control its industrial and technological development
autonomously. I think it's safe to say these last five years have more
than proven that true. In China, any industry that wants to develop its
own technology or markets has encountered increasingly great barriers."(33)

More problematic still is the fact that in order to maintain the
country's key regional position in the face of competition from other
countries seeking to improve their own position within cross-border
value chains, the Chinese state has had to ensure that wages are kept
low and productivity high.

One consequence of China's success is that transnational
corporations throughout East Asia (and elsewhere) have been shifting
their production to China to take advantage of its more profitable
production conditions. This has led to lower rates of investment and
growth throughout the region and the implementation of new labor
regimes designed to weaken labor protections. As a result, workers
throughout East Asia (and elsewhere) have become pitted against each
other in a contest to match the level of labor exploitation achieved in
China.(34)

The problems for China's main Latin American and African trade
partners are somewhat different but also serious. These countries
supply China with primary commodities rather than manufactured parts
and components. And China's large and growing need for these
commodities has certainly boosted Latin American and African foreign
exchange earnings and growth. These gains, however, come at significant
long-term cost. Trade agreements with China, sometimes supported by
Chinese financial assistance and foreign investment, reinforce existing
structural imbalances by further strengthening the dominance of the
primary commodity sector.(35)

At the same time, Latin American and African efforts to build up
manufacturing (and diversify exports) tend to be undermined by China's
own export offensive. For example, close to 95% of all Latin American
high technology exports face competition from China-based exporters.
These threatened high technology exports represent almost 12% of all
Latin American exports.(36) Finally, of course, Latin American and African trade with China can also be expected to suffer if Chinese growth falters.

In sum, the market logic driving China's reform strategy promoted an
economic transformation that allowed Chinese economic dynamics to
become enmeshed in a broader process of transnational restructuring,
one that accelerated the reforms in ways guaranteed to ensure the
dominance of capitalist imperatives in China.

As a result, far from opening up new possibilities for working
people, China's reform strategy has actually strengthened a
transnational accumulation process that is generating serious national
and international imbalances and tensions that will eventually require
correction at considerable social cost.

Final thoughts

Several conclusions emerge from the above examination of the Chinese
experience. First, China's market reform process has led not to a new
form of (market) socialism, but rather to the restoration of capitalism
(although "with Chinese characteristics"). Concretely, the Chinese
growth process has given rise to a new political economy that is
hostile to the goals of socialism, the promotion of all-rounded human
development, solidaristic relations, cooperative planning and
production for community needs, and collective or social ownership of
productive assets.

Thus, the Chinese experience stands as a clear warning: socialism
cannot be built through the use of markets and a closer integration
with global capitalist accumulation dynamics. In fact, the confusion
within the left over the nature of the Chinese experience suggests that
there has been a loss of clarity about what constitutes socialism and
appropriate criteria for evaluating progress towards building it.

Second, China's economic experience reveals much about contemporary
capitalism. China is considered a model developer; the country has
achieved a sustained and rapid rate of growth, attracted massive
inflows of productive capital, and is exporting ever more sophisticated
manufactured goods. Yet these accomplishments have not translated into
meaningful gains for growing numbers of Chinese workers.

In fact, workers in China face labor and working conditions
increasingly similar to those in Latin America and Africa, regions
where most countries are considered development failures. Therefore, it
appears that the answer to worker problems in Africa, Latin America and
elsewhere for that matter, is not to be found in supporting policies
designed to achieve "successful" capitalist development, especially
those designed to replicate the Chinese experience.

Third, China's growth trajectory has become tied to and dependent
upon existing accumulation processes shaped by transnational capitalist
dynamics. As a result, China cannot be counted on to assist in the
creation of a radically new economic system.

This does not mean that trade with China is to be avoided. It also
does not mean that Chinese elites and western (especially U.S.) elites
see eye to eye on all geopolitical issues. Capitalist competition is
real and differences between these elites can and often does create
openings that are helpful for the third world, especially for those
countries under threat from the United States.

At the same time, since Chinese elite interests are structurally
shaped by capitalist imperatives, there are limits to the types of
changes that Chinese leaders can be expected to support. Caution is
also in order, given the expected consequences from the imbalances and
tensions generated by the above described transnational dynamics.

This critical perspective on the Chinese experience should not be
taken as support for those analysts (many of whom write in the United
States; some of whom are close to the U.S. labor movement) who view
China as the primary cause of most economic problems. Their often
repeated claim is that if only the Chinese government were forced to
"abide" by the "free-market" rules of acceptable capitalist
competition, all would be well in the world economy (and by extension
for working people).

An implied assumption is that Chinese workers are enjoying real
benefits from their country's "unfair" state interventions, and their
employment and income gains are coming at the expense of workers in
other countries, especially in the advanced capitalist countries (which
are the main market for Chinese exports).

Tragically, this line of argumentation encourages workers outside of
China to mistakenly believe that their enemy is China, rather than the
system of capitalism that shapes their country's economic relationship
to China and pits them against Chinese workers in a destructive
competition. In fact, as we saw above, Chinese growth is increasingly
dependent on the export activities of transnational corporations, many
of which come from the advanced capitalist countries.

Moreover, despite - or in fact because of - their country's rapid
growth, Chinese workers, like workers everywhere, are facing hard
times. Decent jobs are scarce, social services are disappearing,
inequality is growing, and competitive pressures demand ever greater
sacrifices.

As noted above, growing numbers of people in China are openly and
directly challenging their country's growth strategy. Even more
noteworthy, these challenges are now fueling political discussions and
debates (many of which are taking place on electronic chat rooms and
bulletin boards) about the nature and significance of Mao era
experiences and socialism.(37)
To this point, farmer and worker participants appear focused on
refuting the false claims of ruling elites that the Mao period was both
a social and economic disaster by drawing on their own life experiences
to illustrate the accomplishments of that period, in particular
employment and social security and a sense of national purpose.

This process of political renewal is taking place under very
difficult conditions due, most importantly, to the ongoing repression
of grassroots organizing and activism by the Communist Party.
Additional challenges include tensions between immigrant and urban born
state workers over jobs and access to social services; confusion caused
by Chinese Community Party claims to be building socialism; and the
fact that the strongest resistance to Party policies comes from those
who continue to uncritically praise Maoism, despite the fact that Mao
generally opposed farmer and worker self-organization and direct
participation in political and economic decision-making.

Despite their current limitations, these struggles, discussions and
debates represent a promising development, one that we can learn from
and hopefully contribute to by finding ways to share our own
understandings of socialism and experiences in movement building with
Chinese participants. It makes our own efforts to better understand the
nature of the Chinese reform experience ever more important.

* While a majority of those on the left are now critical of China’s
market reform strategy, a significant number of defenders remain.
People want to believe that there are workable alternatives to
neoliberalism, and belief in the progressive nature of China’s social
transformation is no doubt encouraged by the fact that China continues
to be demonized by the U.S. government; China makes loans to, invests
in, and trades with Cuba and Venezuela; and the Chinese Communist Party
still rules and publicly proclaims its commitment to socialism. More
specifically, I have participated in international conferences and
meetings where Cuban and Venezuelan economists have supported the
Chinese market reform strategy and argued for adoption of similar
policies in their own countries. Defenders of the Chinese growth
process also continue to argue their position on numerous left internet
discussion lists. The journal Critical Asian Studies had no trouble in
organizing a roundtable in which several editors of the journal took
issue with Paul Burkett and my critique of China’s market reform
experience as expressed in our book China and Socialism, Market Reform
and Class Struggle (New York: Monthly Review Press, 2005). The
criticisms and then our response were published in the journal
(Critical Asian Studies, September 2005 and December 2005). In
addition, well known scholars such as Giovanni Arrighi, David
Schweickart, and Immanuel Wallerstein continue to publish articles and
books in which China’s rise as a non-capitalist/socialist power is
celebrated. For a recent example of such writings see Giovanni Arrighi,
Adam Smith in Beijing: Lineages of the Twenty-First Century, London:
Verso, 2007.

John Whalley and Xian Xin, "China's FDI
and non-FDI Economies and the Sustainability of Future High Chinese
Growth," National Bureau of Economic Research, Working Paper Series,
Number 12249, 2006; Tom Miller, "Manufacturing That Doesn't Compute,"
Asia Times Online, 22 November 2006.

Ibid. In 2005, the central government
gave local governments the authority to reform the registration system,
including ending distinctions between rural and urban residents. The
great majority have refused to make any changes; most local officials
are closely allied with local business interests and do not want to
jeopardise enterprise (or their own personal) profitability.

Data in this and the following paragraph
come from Prema-chandra Athukorala and Nobuaki Yamashita, "Production
Fragmentation in Manufacturing Trade: The Role of East Asia in Global
Production Networks," in Filippo di Mauro, Warwick McKibbin and
Stephane Dees (eds.), Globalization, Regionalization and Economic
Interdependence, Cambridge: Cambridge University Press, forthcoming.

Prema-chandra Athukorala, "The Rise of
China and East Asian Export Performance: Is the Crowding-out Fear
Warranted?" Australian National University, Division of Economics,
Working Paper No. 2007/10, September 2007.

Asian Development Bank, Asian Development Outlook 2007, 70.

Stephen Philion, "The Social Costs of
Neoliberalism in China, Interview With Economist Han Deqiang," Dollars
& Sense, July/August 2007. For a more detailed discussion of the
negative consequences of the reforms on China's technological
capacities see Martin Hart-Landsberg, "The Chinese Market Reform
Experience, A Critical Assessment," forthcoming.